Political Stability and Foreign Direct Investment

Abstract

The paper investigates the relationship among the foreign direct investment (FDI) and political stability by investigating the country-level FDI flows, FDI inward performance and political stability measures. Countries with high political rights have higher FDI outflows. Also, countries with high level of corruption of government and low level of democracy have higher FDI inflows. The results are consistent with the argument of that political factors are important in explaining FDI flows. We also find that FDI inward performance has consistently positive relationships with the level of corruption of government, while negative relationships with the political rights, when key variables from factor analysis are included.